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Temasek, Singapore's second-largest sovereign wealth fund, [SWF] is certainly doing far better than Singapore exchange-traded funds such as the iShares MSCI Singapore (NYSEARCA:EWS) that is down almost 17% year-to-date.

The lesson is that it pays to play as a big boy with lots of cash and negotiating leverage.

Temasek is the biggest shareholder in Merrill Lynch (MER), the troubled investment bank that has written down $50 billion worth of losses since the credit crisis began. And it may be coming back to the table another time.

Megan Barnett of Portfolio reports that at a speech in Singapore yesterday, Temasek's chairman indicated the fund would consider putting even more money in Merrill, according to Bloomberg. Last month, Temasek committed another $900 million to Merrill, which would put its ownership above the regulatory limit of 10 percent for foreign investors. It's currently pending approval.

Temasek and the other early investors in Merrill Lynch, like the pension fund of New Jersey, were made whole on their initial investment when Merrill sold more stock to the public in July. Singapore used its size to negotiate an anti-dilution clause that was triggered by the subsequent stock offering.

Merrill ended up paying Singapore $2.5 billion in July, which made it whole despite the stock price being cut in half. Temasek says its assets grew by 13% in the 12 months that ended in March, to $131 billion

Meanwhile, the performance of the Singapore ETFs (iShares MSCI Singapore, NETS FTSE Singapore Straits Times Index (SGT)) have lost some of its blue chip luster as its economy has slowed and inflation heated up.

The Singapore government predicts 2008 GDP growth of 4-5% after a negative second quarter due to weak manufacturing and exports. The economy grew by 7.7% in 2007.

”While the US economy has avoided recession to date, the major economies are experiencing a generalized slowdown. Weaker demand in the major economies, coupled with the need to contain inflationary pressures, will dampen growth in the fast growing Asia economies,” said the ministry of trade and industry.

Manufacturing, which contracted by 5.2% in the second quarter from a year ago, dragged down growth. Construction was up 17.4% and services 7%. If oil prices continue to fall, the government will have more room more room to pursue pro-growth policies since inflation is at a 26-year high of 7.5%.

Source: Singapore Sovereign Wealth Fund Is Outpacing the Country ETF